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Presentation 2Q09 - English audio (presentation only)


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Q&A session available in Russian version (translation into English for the Q&A)

  • Anna Sidorkina
    Good day; thank you for taking part in our telephone conference. Before giving the word to Mr Yakovlev, our CFO, I would like to remind this audience that the presentation as well as the comments contained in the presentation are forward-looking statements concerning the financial condition, results of operations and business at Gazprom Neft and its consolidated subsidiaries. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that can cause actual results, performance or events to differ materially from those expressed or implied in these
    statements expressed in the course of the conference call. Now the floor is given to Mr Yakovlev.

    Vadim Yakovlev
    Thank you Anna. Good morning; for those of you who listen to us in the morning I
    warmly welcome you to our conference call. Let’s begin the discussion of the results of the Second Quarter of the year 2009 for Gazprom Neft.
    I would start with the highlights, the major events that have been reflected in our results and our reporting. First, as you probably know, after a series of Bills Gazprom Neft has now full control over Sibir Energy, so the reports that you see first in time contain consolidated results for Sibir Energy. Apart from Sibir Energy we are in effective control of Moscow Refinery and Moscow Refinery has also been consolidated into our accounting reporting in Gazprom Neft.
    As far as operating results are concerned, the major highlights here would be – this is going to be discussed further on – the increase of daily production that we managed to achieve in the Second Quarter of the year 2009. The large scale rebranding programme of our retail chain to the end of the year; we are planning to rebrand about 230 stations and we have gained great momentum in this programme. Besides, in full accordance to our strategy of expanding retail chain and marketing opportunities, we are now finalising the acquisition of Chelyabinsk region retain chain that contains 41 gas stations as well as two tank farms. It amounted to approximately $35 million and partially our results do reflect the effect from acquiring this further asset.
    Now let me say a few words about macroeconomics. All in all the Second Quarter of the year 2009 is characterised by continuation of positive dynamics for us; the price of oil grew and it went from $50 per barrel to $70 per barrel in the Second Quarter. If we compare now to the last year, we see that prices are considerably lower. We do not expect them to restore to the level of the previous year and I think the level that we’re having now is in full occurrence with the average statistic values and we are planning our activity in accordance with the statistics that we are seeing right now in the market.
    One particular feature of the Second Quarter of the year 2009 as well as First Half of this year at large was that refining networks have been lower than export networks.
    Such a situation is unique in fact; it’s first in a few years that it’s occurred. It lasted for a few months and right now we already see a different picture; however as far as the Second Quarter and First Half of the year is concerned, this factor has been key to our results as the share of refining in our balance is quite high, so this peculiarity did influence our results negatively and this you’ll see in our results dynamics if you compare that with other players in this industry. As has already been mentioned, this situation is temporary in character and what we’re seeing in August is totally different in September. Refining networks have adjusted and refining margin in the Third Quarter is going to be at a comfortable level, about $1,000 per ton and up to RUB2,500 per ton.
    Our major financial indicators: as price went up, our profits went up by about 24%.
    EBITDA went up by 68% as compared to the First Quarter and this in principle is a good growth if we now compare our results with other key players in the market. You’ll see that our growth is a bit lower, but this is connected with this high refining share in crude balance that constrained our quarterly revenue growth and it is higher than average in the industry. In the Third Quarter you will already see the positive trend here. As far as net income is concerned, net income in the Second Quarter amounted to $1.199 billion growth as compared to the First Quarter, grew more than three times, which is connected not only with the operating results of the Company, but also with the effect from consolidating our Moscow Refinery. Earlier we reflected Moscow Refinery as an equity investment and we took into account and we didn’t consolidate it, but now in accordance with US GAAP standards we have consolidated this investment at a fair price and the difference between fair price and previously reflected in our balance, the historical price was demonstrated as income from acquisition of such assets in accordance with US GAAP standards.
    Let’s look at our operating results. On slide 9 you can see the dynamics of our crude
    output, refining, crude oil sales and oil products sales. I’m not going to amplify that;
    hopefully you have already looked through the slide and analysed the figures.
    Let us look at the next slide. I won’t deprive Boris from the chance to comment on this slide; it’s devoted to upstream and our production and he takes pride in commenting on it, I guess, right?

    Boris Zilbermints
    Yes, indeed; Gazprom Neft works on brownfield; however, we managed to change the trend for declining production. In the Second Quarter of the year 2009 we managed to increase our production by means of stabilising production on Noyabrskoye fields, Noyabrskoye region and Gazprom Neft () our asset as well as Priobskoye field has contributed indeed as well. In the future these results will keep growing. We kept growing daily output and our plan for September and the upcoming months is to keep growing and to get to about 84 tons per day on average.

    Vadim Yakovlev
    Thank you, Boris. Now we are looking at the development in our upstream segment; we spent less in terms of our production capex. You’ll see it on the next slide; we spent 40% less on this upstream segment of ours than last year and yet we do have certain measures taken on optimisation. We keep cutting on our costs and this allowed us to even increase our activity. We have drilled in () amount of new wells and this is the highest result. We have launched 178 wells and this is again one of the largest indicators in the last few years. Despite the very understandable effect of () depletion the average flow rate on the new drilled wells has increased up to 55.4 tons per day. Priobskoye field and Vyngayakhinskoye field were leaders in our growth of production. This is from the Khantos asset.
    Now let me say a few words about our downstream segment. The depth of conversion as you can see in Omsk and in the Moscow Refinery kept growing while Yanos was pretty stable. In the lower part of the slide you can see that we’ve increased the quality of our oil products. You can see that fuel oil was cut from 22 to 19% as compared to the year 2009 and you can also see the growth in high-octaine number gasoline yield.
    We kept expanding our marketing as I’ve already mentioned. Our Company is now finalising that they are acquiring 41 stations in Chelyabinsk region, besides we’ve started bunkering and jet fuel sales. You can see it on the map here and let’s say Khabarovsk with Ust-Luga and Belarus; this is where our marketing assets fleet occurred. Earlier we did it through Slavneft and now Slavneft does it directly.
    As far as the dynamics are concerned, the total volume of sales was cut from the level of 4.4 to 4 this year and this is connected with the fact that due to the crisis the demand went down. We still find our premium sales of lubricants, jet fuels; they went up by 10% as compared to last year and also grew as compared to the First Quarter of this year. As has already been mentioned, we have started a large scale rebranding campaign of our retail chain. If you didn’t have a chance to see it in life, please have a look at the picture. 45 filling stations are already operating under the new style and 43 stations are on the way. In 2009 a new brand is to be introduced at 230 fuelling facilities and hopefully by the end of 2011 we’ll rebrand 1,003 gas stations under the Gazprom Neft brand.
    A few words about our financial results: sales breakdown - revenue breakdown as seen in the First and the Second Quarter. Here you can see exports increased in the total balance due to the fact that our volumes have gone up as we acquired the assets and besides, export sales became more liquid here as compared to refining as has already been mentioned.
    In the course of the Second Quarter it was good for us that exports duties are lagging behind for products as compared to crude.
    As far as our expenditure is concerned the situation that we see here is quite satisfactory to us. In upstream year-on-year they decreased by 18%, which is quite a good result, much higher than the devaluation effect, which demonstrates that the effect from cost-cutting that we received not only because of the beneficial environment, but it was also achieved due to our efforts. Our marketing costs and administrative costs have been up, which is only natural; they have already been mentioned here. We have here an effect from consolidating a different company’s assets that we haven’t consolidated before and we also consolidated NIS in February and March and now we consolidated it all through the period.
    Here you can see EBITDA development; you can see a recovering trend. On the whole in the Second Quarter we have achieved 29% EBITDA margin, which is a bit lower than that of the last year. However, as has already been mentioned, we connect it with the fact that the refining margin was negative for us in the Second Quarter.
    Cash performance is on slide 20. Operating cash flow in the Company in the First Half of the year amounted to $1.7 billion. We spent in capex and the figures are all here on the slide and this arose funds we actively invested in extending our marketing chain; we invested into Sibir Energy and Moscow Refinery; this amounted to $2.2 billion and we not only used our own money, but also increased our debt by 1 billion. As a result the total level of money refunds amounted to the figure that is quite comfortable for us and we have quite a good result that would allow us to feel comfortable in terms of servicing our debt in the future and in terms of developing our Company in the future. Free cash flow in the Second Quarter has gone up; the growth amounted to about 50% and amounted to $182 million.
    What we see next is capex breakdown; as compared to last year we can see it’s going down by 11%. As compared to the First Quarter of the year 2009 you can see growth from 480 to 717. One thing important here is investment into upstream. They went down; however, it didn’t turn negatively on our operating activity and on the volumes of our activity. The key peculiarity here is that we stepped more in downstream where we’re realising our rebranding campaign investment. Besides, we have a comprehensive campaign on revamping that we started last year and now we’re in the next stage in it in our upgrades programmes. As you can see, our investment into refining amounted to $200 million in the Second Quarter of the year 2009. Our operating cash flow in other sectors allows us to do quite nicely in realising our capex programme.
    Debt profile can be seen on the next slide; we also have here all the interesting parts. Debt to EBITDA has grown up, which is connected with credit portfolio growth and as compared to last year you can see EBITDA levels went down. However, the EBITDA level that we managed to achieve by the end of the Second Quarter is about 65%. It’s quite satisfactory to us and we feel compliant with the governance of our credit agreements.
    While this would be all that I wanted to say in this part, all in all the Company is satisfied with the results we have achieved in the First Quarter. As has already been mentioned the positive effect is not only due to the improvement in the macroeconomic situation and the economic environment, but due to the growth in production due to the improvements in our high quality products yield and this is due to the results of positive activities of our management. I now will be more than happy to answer your questions myself and my colleagues alike. Thank you very much for your attention.

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Presentation 2Q09 - English audio (presentation only)

  1. 1. 2 Q 2009 US GAAP Financial and Operating Results September 9, 2009
  2. 2. Disclaimer This presentation contains forward-looking statements concerning the financial condition, results of operations and businesses of Gazprom Neft and its consolidated subsidiaries. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Gazprom Neft to market risks and statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’, ‘‘estimate’’, ‘‘expect’’, ‘‘intend’’, ‘‘may’’, ‘‘plan’’, ‘‘objectives’’, ‘‘outlook’’, ‘‘probably’’, ‘‘project’’, ‘‘will’’, ‘‘seek’’, ‘‘target’’, ‘‘risks’’, ‘‘goals’’, ‘‘should’’ and similar terms and phrases. There are a number of factors that could affect the future operations of Gazprom Neft and could cause those results to differ materially from those expressed in the forward-looking statements included in this presentation, inclusively (without limitation): (a) price fluctuations in crude oil and oil products; (b) changes in demand for the Company’s products; (c) currency fluctuations; (d) drilling and production results; (e) reserve estimates; (f) loss of market and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) economic and financial market conditions in various countries and regions; (j) political risks, project delay or advancement, approvals and cost estimates; and (k) changes in trading conditions. All forward-looking statements contained in this presentation are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on these forward-looking statements. Each forward-looking statement speaks only as of the date of this presentation. Neither Gazprom Neft nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. 2
  3. 3. Management Participants in Today’s Call Vadim Yakovlev Deputy Chairman of the Management Board and CFO Boris Zilbermints Deputy Chairman of the Management Board, Deputy CEO for Exploration and Production Anatoly Cherner Deputy Chairman of the Management Board, Deputy CEO for Refining and Marketing Yuri Kalner Head of Strategic Planning Department 3
  4. 4. 2 Q and 1H 2009 Highlights • Increase in Daily Production +2,9% in 2Q 2009 • Rebranding program launched - 230 new style stations by the end of 2009 • Consolidation of Sibir Energy • Consolidation of Moscow Refinery • Acquisition of Chelyabinsk region retail chain (+ 41 gas stations and 2 tank farms) – April 2009 (approx. $ 35 MM) 4
  5. 5. Key macroeconomic factors: crude pricing environment is steadily improving Crude pricing, RUR/USD Rate (eop) Crude Export Profitability (per bbl) 160 40 $160 Urals, $/bbl (lhs) RUR/$ rate (rhs) $140 140 35 117,4 Urals down 50% $120 120 30 $100 $80 100 25 Netback less MET 58,5 $60 down 42% 80 20 $40 60 15 $20 35,9 25,2 $0 40 10 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 ($20) Crude export netback less MET in Western Siberia MET Crude export duty Urals (cif Novorossiysk) 20 5 ($40) Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 • In 2Q09 Brent prices averaged at $59/bbl (-51% y-o-y, +34% q-o-q), Urals prices averaged at $59/bbl (-50% y-o-y, +33% q-o-q) • In 2Q09 Russian Ruble depreciated vs. US Dollar by 27% y-o-y and appreciated by 5% q-o-q. • In 2Q09 Russian CPI inflation stood at 2,0% vs. 3,9% in 2Q08 and 5,4% in 1Q09. • Despite 50% average Urals price decline y-o-y in 2Q09 to 59/bbl, crude exports netback adjusted downwards by MET reduced only 42% to $25/bbl. Source: Platt’s, Federal Statistics Service, Company data, Central Bank of Russia, Argus 5
  6. 6. Key macroeconomic factors: crude exports netback outperformed refining netbacks in 1H09 72,5 66,7 Refining netback, $/bbl 62,1 63,4 Crude exports netback, $/bbl 60,7 CIS crude exports netback, $/bbl 41.2% 18.7% 8% 42.3% 21.2% 9% 35,2 33,5 24,3 32,2 23,8 30,9 29,5 22,5 21,6 21,7 ONPZ MNPZ YANOS ONPZ MNPZ YANOS ONPZ MNPZ YANOS 2Q08 1Q09 2Q09 • One of the key trends observed both in 1H09 and 2Q09 was sharp reduction of refining profitability in Russia. In 2Q09 refining netbacks at all Gazprom Neft’s refineries was lower than that of crude oil export shipments. • Going forward given crude prices staying at current level and recovered domestic prices for oil products refining netback should again exceed that of crude exports. Source: Company data 6
  7. 7. Gazprom Neft’s Key Financials, $ mln (48%) (48%) • Oil price fluctuations drove 24% $18 002 Revenues up Q-o-Q and down Y- o-Y $9 957 $10 085 $9 365 Revenues* $4 988 $5 180 • High Refining share in crude $4 185 balance constrained quarterly revenue growth 2Q08 3Q08 4Q08 1Q09 2Q09 1H08 1H09 (53%) (55%) • Existing fiscal regime was the 57% main contributor to thesurpassing $3 204 $2 765 quarterly EBITDA growth $5 413 EBITDA $957 $1 501 $2 459 • Rouble appreciation and $416 commitment to Refining played negative role in EBITDA growth 2Q08 3Q08 4Q08 1Q09 2Q09 1H08 1H09 (45%) (57%) 258% • Gain from Sibir Energy acquisition $3 607 and Fx gain were the main $2 196 reasons for outstanding Net $1 594 $1 534 Net Income $1 200 Income growth $335 -$543 1H08 1H09 2Q08 3Q08 4Q08 1Q09 2Q09 Source: Company data * Revenues for 2007 and 1-3Q08 were adjusted for excise tax that was previously excluded (2007 –$ 0.7B; 1Q08 – $0.2B, 2Q08 - $0.3B; 3Q08 - $0.8B) EBITDA includes the Company’s share in its equity affiliates (Slavneft , Tomskneft, Moscow refinery and Salym Petroleum Development) EBITDA 7 Source: Company data
  8. 8. Operating Results 8
  9. 9. Operational Performance Crude output (MM Tonnes) Refining (MM Tonnes) 3,6% (0,9%) 8,0% 14,1% 11,0 11,4 11,5 0.3 7,5 8,1 7,1 1,3 1,4 1,3 2,4 0.8 0,8 2,2 2,3 0,6 0,2 1,7 1,6 0,2 0,8 1,6 0,6 7,3 7,4 7,7 4,4 4,9 4,9 1Q09 2Q09 2Q08 1Q09 2Q09 2Q08 Ow n Production NIS Slavnef t* Tomsknef t* Sibir Energy Omsk NIS Yaroslavl Moscow Crude Oil Sales (MM Tonnes) Oil Products Sales (MM Tonnes) 17,1% 15,5% (15,7%) (18,9%) 7.0 8.2 7.1 5.3 3,9 5.1 0,2 3,5 0,2 4.3 4,2 0,8 0,4 0,8 4,4 0,4 0,8 0,3 4,1 3,2 3,9 3,5 2,5 1Q09 2Q09 2Q08 1Q09 2Q09 2Q08 Crude export Crude export to CIS Crude domestic Export Export CIS Domestic * Production figures include 50% of Slavneft and Tomskneft Source: Company data 9
  10. 10. Upstream: core assets daily output is surprising on the upside 89 August average – 87 83 317 tonnes/day January average – June average – 85 81 282 tonnes/day 82 567 tonnes/day March average – 83 80 273 tonnes/day 81 79 77 75 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Source: Company data 10
  11. 11. Oilfield Development Production Drilling (Th. Meters) 638 575 524 494 434 2Q08 3Q08 4Q08 1Q09 2Q09 Number of New Wells Launched* 171 178 151 160 122 55,4 55,7 54,2 53,4 51,1 2Q08 3Q08 4Q08 1Q09 2Q09 Average flow at new wells, Tonnes per day Gazprom Neft Production by Field* 1Q09 2Q09 • Quarterly Organic production growth driven by: Sugmutskoye Others 30,6% Sugmutskoye Others 31,4% 13,1% 12,1% • Increased drilling Krapivinskoye • More new wells launched Priobskoye 3,1% Priobskoye Krapivinskoye 24,6% Muravlenkovsko 26,4% • Improved average flow rate at new wells 3,5% ye 2,3% Muravlenkovsk Sutorminskoye • Production well stock optimization oye 2,4% Vyngapurovsko 7,7% Sporyshevskoye Sutorminskoye Sporyshevskoy ye 11,3% Vyngapurovsko • Priobskoye (+13 749 bbl a day) and Vyngayakhinskoye (+3 457 bbl a day) 5,6% ye 12,2% 7,8% e 5,9% are leaders in terms of quarterly organic extraction growth Source: Company data 11 *Gazprom Neft data not including its share in equity affiliates (Slavneft , Tomskneft) and NIS
  12. 12. Refineries complexity Refining Conversion Ratio, % 100 Omsk • Omsk refinery tends to be one of the most 95 technologically advanced in Russia 90 Moscow 85 Yanos • High gasoline and light products yield favors 80 Gazprom Neft in case of equalization of export duty for heavy and light products 75 70 • Modernization at Moscow refinery is more 65 visible in view of Sibir Energy acquisition 60 55 50 6M08 9М08 2008 3М09 6М09 Oil Products Slate, % (6M08 and 6M09) 3,624 3,869 Fuel Oil Diesel 100% 100% 19% 35% 2 2 90% 90% 80% +13% 80% Other 20% 0 0 70% 70% Gasoline 60% 60% Gasoline 28% 0 Other 50% 40% -29% 50% 40% 29% 0 8 15% 30% 20% 30% 20% 9 10% +16% 10% Diesel Fuel Oil 0% 32% 0% 22% Source: Company data Other Gasoline Low -octaine gasoline High-octaine gasoline 12
  13. 13. Oil Products Marketing expansion Oil Products Sales in Russia (MM Tonnes) Sales regions 4,4 4,4 New assets -1H 2009 4,1 4,0 3,6 Murmansk 2Q08 3Q08 4Q08 1Q09 2Q09 Ust-Luga Archangelsk Oil Products Sales Through premium channels (MM Tonnes) Belorussia 1,3 1.1 1,1 1,0 0,9 Khabarovsk 0,5 0,4 0,4 0,3 Italy -15% -18% 0,3 22% Serbia +30% 0,8 0,7 0,7 0,6 0,7 Kazakhstan 2Q08 3Q08 4Q08 1Q09 2Q09 Kirgizia Novorossiysk Chelyabinsk region Retail network other premium sales* Sibir +40 gas stations Caucasus Harbor Number of Active Gas Stations 133 Bunkering NIS 435 Airports 865 896 777 782 673 +15% +1% +11% +4% Retail – Most Efficient Downstream Segment • Oil products sales through premium channels grew by 22% in 2Q09 31 Dec, 2005 31 Dec, 2006 31 Dec, 2007 31 Dec, 2008 30 Jun, 2009 • Own retail network (including NIS and Sibir) totaled 1 514 gas stations Source: Company data 13 * Other premium sales includes sales of new business units – bunkering, aero fuelling and lubricants business
  14. 14. Rebranding campaign Retail – Most Efficient Downstream Segment • 45 filling stations are operating under new style; rebranding activity is on the way on 43 stations • In 2009 a new brand is to be introduced at 230 fuelling facilities operating currently under different brands • By the end of 2011 there will be 1003 gas stations under GazpromNeft brand 14
  15. 15. Financial Results 15
  16. 16. Sales breakdown Revenue Breakdown 1Q09 Revenue Breakdown 2Q09 4% Crude Export 3% 32% Crude CIS 35% Crude domestic Products export 1% 29% 29% 0% Products CIS 3% Products domestic 4% Gas 0% 1% 0% Other 2% 30% 27% 1Q09 2Q09 Change, % Total revenues 4 185 5 180 24% Crude export 1 231 1 410 15% Crude CIS 137 209 53% Crude domestic 33 9 (73%) Products export 1 310 1753 (34%) Products CIS 148 172 16% Products domestic 1 183 1485 26% Gas sales 32 19 (41%) Other 111 123 11% Source:Company data 16
  17. 17. Taxes: Gazprom Neft benefited from lagging export duties and reduced MET Duty lagging effect gaining ground in 2Q08 & 2Q09, $/t Actual MET vs. “OLD” MET, per bbl $30 700 +/- Actual duty Theoretical duty 600 $25 500 $20 400 $15 300 $10 200 $5 100 +/- MET Old MET 0 $0 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 • In 2Q09 Gazprom Neft’s export duty payables grew only modestly by 6,9% q-o-q to $623 mln despite strong Urals price growth by 16,6% to $58/bbl as a result of duties calculation lagging effect. Thus in 2Q09 Gazprom Neft was benefiting from limited duties increase. • Following MET formula calculation amendment incorporating increased crude threshold price from $9/bbl to $15/bbl effective from January 1, 2009 Gazprom Neft had net benefit of $1,3/bbl for all crude volumes produced domestically both in 2Q09 and 1H09. 17
  18. 18. Costs under control Unit costs dynamics, $/bbl Absolute costs dynamics, $ mln 7,0 6,83 6,5 6,00 5,80 1Q09 2Q09 2Q09A* QoQ QoQA* 6,0 5,33 5,91 5,5 5,24 Operating: 387 427 10% -1% 4,80 5,13 385 5,0 5,15 4,56 4,5 4,67 Upstream 258 291 262 13% 2% 4,74 4,84 4,49 Downstream 129 136 5% -5% 4,0 4,27 123 3,5 3,18 3,0 2,94 Transportation 382 428 386 12% 1% 2,55 2,5 2,86 2,24 SG&A 282 330 298 17% 6% 2,0 2Q08 3Q08 4Q08 1Q09 2Q09 Upstream Downstream A* - adjusted for real Ruble appreciation vs. USD of 10.9% in 2Q09 Transportation SG&A • In 2Q09 most of cost lines declined y-o-y following Ruble devaluation in the beginning of 2009. Upstream operating costs were down by 20% y-o-y to $291 mln. Downstream operating costs were down 10% y-o-y to $136 mln. Transportation cost in 2Q09 reduced only marginally by 1% y-o-y to $428 mln as devaluation effect was diminished by transportation tariffs hikes in the beginning of 2009. SG&A costs were up 20% y-o-y neglecting devaluation effect due to NIS and marketing units consolidation starting from 2009. • Q-o-Q costs analysis shows Gazprom Neft’s modest cost increase if adjusted for real Ruble appreciation vs. US Dollar of 10.9% in 2Q09. 18
  19. 19. EBITDA is on strong recovery track Adjusted EBITDA per barrel ($/bbl) Adjusted EBITDA Margin 40 37% 32,2% 35 32,5 37,6 31% 29,0% 27,4% 30 25% 22,9% 25 20 19% 17,9 15 12% 5,0 8,3% 10 11,5 6% 5 0 0% 2Q08 3Q08 4Q08 1Q09 2Q09 2Q08 3Q08 4Q08 1Q09 2Q09 • In 2Q09 Gazprom Neft’s adjusted EBITDA reduced by 53% y-o-y and increased by 57% q-o-q to $1 501 mln. • Adjusted EBITDA per barrel of production in 2Q09 is down 52% y-o-y and up 52% q-o-q to $17,9/bbl. • In 2Q09 adjusted EBITDA margin of 29% almost restored its pre-crisis record values. 19
  20. 20. Consistent Cash Performance Cash Sources and Uses (US$MM), 6m 2009 Available Net Cash Flow (US$MM) $219 $1 665 -$1 197 $577 $2 000 $2 075 -$2 219 $2 564 $1 676 $1 498 -$502 $888 $502 $1 717 $1 197 31.12.2008 Operating Capital Other Debt Net Dividends 30.06.2009 Cash Flow Expenditures (Investing Change $52 Activities) Sources Uses Operating Cash Flow (US$MM) Operating Activity (excl. Working Capital) Working Capital Capital Expenditures Dividends 2 147 Debt Received Debt Repaid -61% Investment Other +49% Cash Increase/Decrease 1 442 1 264 +50% 636 847 -21% 999 • Debt used for refinancing and M&A 17 666 282 191 • Capex financed by operating cash flow 806 883 830 717 475 • $1.5B of cash remained at end 2Q09 2Q08 3Q08 4Q08 1Q09 2Q09 Capex Free cash Flow Source: Company data 20
  21. 21. Organic Capex Breakdown Capex Dynamics, $ mln $806 • 2Q09 CAPEX is 11% below that in $717 -11% 42 2Q08 due to Ruble devaluation 42 effect and CAPEX efficiency 114 increase. +49% 323 $480 204 • In 2Q09 upstream CAPEX grew only 43 modestly by 9% q-o-q to $399 mln 72 • In 2Q09 refining CAPEX almost 181 224 tripled vs. 1Q09 level to $204 mln. 398 due to the acceleration of upgrade programs at the Company’s 184 175 processing facilities • In 2Q09 Marketing and Distribution 1Q09 2Q09 2Q08 CAPEX more than doubled vs. 1Q09 to $114 mln due to the launch of the Upstream - Brown Fields Upstream - Green Fields Refining Marketing & Distribution wide-spread rebranding program by the Company’s marketing units. 1Q09 2Q09 2Q08 Upstream $6.9/bbl $7.3/bbl $12.6/bbl Brown Fields $4.6/bbl $4.4/bbl $9.1/bbl Green Fields $13.5/bbl $15.2/bbl $24.1/bbl Source: Company data 21
  22. 22. Debt Profile Net Debt/EBITDA, Gearing (%) Maturity Profile (US$MM) 0,90 30% 1 278 1 256 0,60 20% 0,30 10% 581 219 0,00 0% 119 2006 2007 2008 2Q09 2010 2011 2012 2013 2014 Net Debt/EBITDA (lhs) Gearing (rhs) Debt Structure as of March 2009, % Credit Ratings BBB/Baa2 Investment Grade 9% BBB-/Baa3 BB+/Ba1 43% BB/Ba2 41% BB-/Ba3 91% B+/B1 16%* B/B2 B-/B3 2003 2004 2005 2006 2007 2008 2009 Foreign Currency (USD, Sberbank* Short-term EUR, RSD) S&P Moodys Long-term RUR Net Debt totaled US$ 3,369 *Bridge agreement, that would be refinanced under the long term basis Source: Company data 22
  23. 23. Recent transactions 23
  24. 24. Sibir Energy: Overview Gazprom Neft share in Sibir Energy, % (as of) Upstream business 54,71% Reserves 33,72% - 120 MM Tonnes (C1 reserves) 27,54% 16,94% Production - 4.8 MM Tonnes in 2009E 23.04.2009 22.05.2009 17.06.2009 23.06.2009 Downstream business Moscow Refinery Shares acquisition (joint venture with Gazprom Neft ) - 10 MM Tonnes of refining throughput In a series of public transactions Gazprom Neft (capacity 12 MM Tonnes ) consolidated 54.71% of Sibir Energy - 133 filling stations - One of the leading position in Moscow and Moscow region market of oil products Source: Company data, Public sources 25
  25. 25. Appendix 26
  26. 26. 2Q 2009: Accounting reclassifications and one-offs Moscow Refinery Valuation Net Income, USD mln. 1,200 805 470 470 335 +258% 335 730 Carrying Value Fair Value Gain from Sibir 1Q09 2Q09 Energy acquisition As of June 23, Gazprom Neft purchased 55% of Sibir Energy, thus increasing it share in Moscow Refinery to 59% and making it a fully consolidated subsidiary As per Purchase Price Allocation the Fair Value at Moscow Refinery was estimated at $805 mln Difference between Carrying value and Fair value in the amount of $470 mln. was recorded as Gain from Sibir Energy acquisition in the Income Statement Other accounting reclassifications 2Q 2008 6M 2008 Excise tax Revenue Revenue 9,957 (+146) 18,002 (+325) Gross up Opex Opex 517 (-10) 974 (-21) SG&A SG&A 265 (-10) Unified Social 439 (-19) Taxes 1,545 (+166) Tax reclassification 2,859 (+365) Taxes Source: Company data 27